Report considers changes to insolvency hierarchy

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A report recently prepared by the Law Commission recommends that consumers who have pre-paid a certain amount for goods and services should be pushed up the hierarchy of creditors.

Parliament is being asked to support the proposed changes to insolvency rules, which include alterations to the classification of creditors.

Under the new regime, those consumers who prepay more than £250 for goods or services in the six months prior to the formal insolvency proceedings being initiated would be treated as preferential creditors as opposed to unsecured creditors.

Presently this group are considered to be at the back of the queue when it comes to distributing the insolvent estate. The changes are being considered as part of efforts to give greater protection to individuals who have often been overlooked.

The Law Commission was tasked by the Government to examine the existing system in detail and determine whether the current arrangements were appropriate or in need of adjustment.

A spokesman said: “The issues are complex and go to the heart of the insolvency regime.

“In 1982, the Cork report rejected greater protection for consumers, noting that consumers typically lose small and affordable amounts while the effect on suppliers can be catastrophic.

“But following the Farepak collapse [the high-profile demise of a Christmas hamper firm a decade ago], the Treasury Select Committee described the existing safety net as ‘inadequate and incomplete’.”

Ministers will now consider the recommendations in the Commission’s report.

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